Cheers to student debt! With the brand new year here to remind all of us how much more our debt is growing, now is a great time to finally get your personal finances sorted out. So, let’s talk about budgeting.

Here’s something you might not want to hear: everyone needs a budget. But those budgets usually have us confronting a lot of financial truths we just don’t want to face, and that’s OK. If you want to truly be in control of your money (and if you’re currently a student who isn’t on a free ride, you absolutely should) you need to know where it needs to be going. So let me break down how to go about creating a budget.

Step 1: Fix your mindset

Maybe you think budgeting is too restrictive, and you don’t like the idea of worrying about where every little microtransaction of yours is going, and you think that budgeting will just add an unnecessary layer of stress. Well, the opposite of this is true. Budgeting is meant to make you stop worrying about your money. You’re not playing a guessing game when you budget, you know exactly where you stand. And knowing where you stand gives you freedom and control over your finances. Your finances do not control you, you control them.
With this mindset, let’s talk about the golden rule: spend less than what you earn. Instead of living paycheck to paycheck, break free from this cycle and build up your finances.

Step 2: Create goals

The most obvious financial goal for any student is to pay off our student debt as soon as possible. It’s easy to think that you will just worry about this once you’re out of school and in the working world, but if you start building your money now, you’re only giving it time to grow. But maybe you are budgeting for different reasons entirely. Maybe you’ve decided that this is the year you finally want to backpack across Europe, or stop living paycheck to paycheck and constantly ending up with $6 in your checking account. Creating goals will keep you motivated, but also serve as a great measure for determining your success.

Step 3: Be honest

Take a look at your bank statements for the last few months and do the math. Figure out where you’ve been spending the most money, and identity any bad habits you have. This is super important to look at before you get started, and once you know your own habits you need constantly keep them in the back of your mind if you find yourself spending money on them again.

Step 4: Calculate your income

If you only have one steady source of income, this is easy. But if you take on a lot of smaller jobs here and there that add up, this can be a little bit trickier. Calculate what you make on a typical month. On the months you earn more, act as though you made as much as you did on a typical month, and save that money for the months that you’re struggling.

Step 5: Categorize your expenses

After looking through your bank statements, create categories for where your money is spent. Separate these categories into essentials and non-essentials. Some typical essential categories include: rent/utilities, transportation, bills (credit cards, phone bills, car payments, insurance, etc.) and groceries. These are all recurring things that should be set at a fixed amount. For non-essentials, think: entertainment, shopping and dining. You can go two ways when deciding how to budget for your non-essentials. Either decide how much you get to spend for each category, or just lump it all together and give yourself a set amount of money for your non-essentials.

Step 6: Try different approaches

One of the most common methods in budgeting is the 50/30/20 rule. This is really easy to follow and more flexible. Use 50 percent of income on living expenses (your essentials), 20 percent should be put away to save and 30 percent of that income is flexible. For 50 percent and 30 percent, these are maximums. If you go under those maximums, then the rest should be put away into savings.

Another method is the envelope rule. Basically, this involves playing the parent to yourself and setting aside a certain allowance for different categories in your spending habits. If you have tried and failed the 50/30/20 rule due to lack of self-discipline, this might be a better starting place. This method involves using cash as opposed to a credit card, as it’s easier to remove yourself from a transaction with a card. You create different envelopes for the different categories and you can only spend that set amount for the rest of the month. Any money left over is saved.

You could also automate your savings and bills, which is a great way to get things done with no effort on your end. But you still might want to budget yourself in the other areas you’re spending in. This just makes it so that you don’t have to think about the other stuff.

Step 7: Use Apps

Using apps helps streamline the process. Apps like Mint and Empower connect directly to your bank and give you spending reports for each month.